IMF: Middle East, North Africa face poor growth

AsaFitch

DUBAI--The Middle East and North Africa is set for another year of poor economic growth, weighed down by conflict in Iraq, Syria and Libya and beset by sky-high unemployment coupled with lower oil prices, according to the International Monetary Fund.

The IMF expects the region's economy to grow by 2.6% this year, rising to 3.8% next year, it said in a regional economic outlook released on Monday. But there are serious downside risks to that forecast. Chief among them are the brewing conflict with Islamic State extremists in Syria and Iraq and political instability in Libya.

"The regional economic impact has been limited so far, but an estimated 11 million displaced persons are already putting pressure on budgets, labor markets and social cohesion in neighboring countries," IMF Middle East director Masood Ahmed said.

Middle Eastern growth has been muted during the almost four years since Arab Spring unrest swept across Egypt, Tunisia and other countries. The economic ripples of these jarring transitions are still being felt today against the backdrop of a more fragile than hoped-for global recovery from the financial crisis.

One major contributor to recent socioeconomic ills has been double-digit unemployment rates in many Middle Eastern countries. But the IMF's baseline gross domestic product growth projections aren't high enough to reduce unemployment in a meaningful way, it said.

Unemployment is of special concern among oil importers such as Egypt, Jordan, Morocco and Tunisia, which have some of the highest jobless rates in the region, especially among young people. In Egypt, unemployment is at 13.3%, according to the most recent government estimates.

For oil exporters, mostly in the Persian Gulf, challenges revolve mostly around containing government budgets. Gulf countries responded to the Arab Spring by ramping up social infrastructure spending to head off local unrest. While that has boosted economic growth, it has put a fresh strain on budgets.

Assuming current fiscal policies continue, the oil exporters' fiscal surpluses will disappear by 2017, the IMF estimates, forcing them to tap savings in sovereign-wealth funds to finance current expenditure. Bahrain and all Middle Eastern countries outside the Gulf are already running government budget deficits.

Christine Lagarde, the IMF's managing director, said this week that Gulf countries needed to seek fiscal consolidation in the medium-term, a priority that has become more urgent because of the 25% decline in oil prices since the summer.

If the oil market stays depressed, the reckoning could come even sooner.

Egypt, Jordan, Morocco and Tunisia are among a number of Middle Eastern countries that have drawn back energy subsidies recently, moves that the IMF has cheered. The money saved is now being diverted to targeted investments to reduce poverty and to contain budget deficits, the IMF said.

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